Abstract
BACKGROUND
Cannabis was legalized in Canada for adult non-medical use in 2018, thereby changing how and where consumers buy cannabis. Prices have continued to decrease since legalization, and there is ongoing competition between regulated and illicit operators. Given these conditions, the aim of this study was to estimate the price elasticity of demand for regulated cannabis.
METHODS
Data were monthly product-level wholesale sales from June 2022 to May 2024 from B.C.'s provincial cannabis wholesaler. We estimated price elasticity of demand for regulated cannabis in B.C. using ordinary least squares regression with fixed effects and controls for supply-side and demand-side factors, including brand, time, number of retailers a product was sold to, and THC and CBD content.
RESULTS
Demand for regulated cannabis was found to be price elastic. Specifically, a 10 percent decrease in regulated cannabis price was associated with a 14 percent increase in the quantity of cannabis purchased in B.C. during the study period.
CONCLUSION
Although pre-legalization studies have observed price inelastic demand for cannabis, this study provides the first post-legalization estimate for regulated cannabis in Canada. Price elastic demand for regulated cannabis in B.C. may result from competition between regulated and illicit cannabis producers and retailers, and the willingness of some consumers to substitute between these sources based on price. These findings provide further insight into the continued displacement of the illicit cannabis market and challenges associated with pricing and taxation for regulated cannabis businesses.
